On April 15, 2018, the US Department of Commerce’s Bureau of Industry and Security (“BIS”) issued an order activating a suspended denial order (the “Order”) concerning ZTE Corporation and ZTE Kangxun Telecommunications Ltd. (collectively, “ZTE” or the “Company”). In explaining the activation, BIS described repeated misleading or false statements made to the US Government both before and since a March 2017 settlement agreement concerning violations of the Export Administration Regulations (“EAR”) (“Settlement Agreement’). More information on the ZTE investigation and the Settlement Agreement can be found in our previous posts here and here.

Under the terms of the Settlement Agreement, ZTE was denied US export privileges for seven years; however, the Order was suspended. It has now been activated.

Effects of the Activation of the Suspended Denial Order

As a result of the activation of the Order, until March 13, 2025, ZTE may not directly or indirectly, participate in any way in any transactions involving any commodity, software or technology exported or to be exported from the United States that is subject to the EAR, or in any other activity subject to the EAR, including, but not limited to:

  • Applying for, obtaining or using any license, license exception, or export control document;
  • Carrying on negotiations concerning, or ordering, buying, receiving, using, selling, delivering, storing, disposing of, forwarding, transporting, financing, or otherwise servicing in any way, any transaction involving any item exported or to be exported from the United States that is subject to the EAR, or engaging in any other activity subject to the EAR; or
  • Benefiting in ay way from any transactions involving any item exported or to be exported from the United States that is subject to the EAR or from any other activity subject to the EAR.

Furthermore, no person (US or non-US) may, directly or indirectly, do any of the following:

  • Export or reexport to or on behalf of ZTE any item subject to the EAR;
  • Take any action that facilitates the acquisition or attempted acquisition by ZTE of the ownership, possession, or control of any item subject to the EAR that has been or will be exported from the United States, including financing or other support activities related to a transaction whereby ZTE acquires or attempts to acquire such ownership, possession or control;
  • Take any action to acquire from or to facilitate the acquisition or attempted acquisition from ZTE of any item subject to the EAR that has been exported from the United States;
  • Obtain from ZTE in the United States any item subject to the EAR with knowledge or reason to know that the item will be, or is intended to be exported from the United States; or
  • Engage in any transaction to service any item subject to the EAR that has been or will be exported from the United States and which is owned, possessed or controlled by ZTE, or service any item, of whatever origin, that is owned, possessed or controlled by ZTE if such service involves the use of any item subject to the EAR that has been or will be exported from the United States. For purposes of this prohibition, servicing includes installation, maintenance, repair, modification or testing.

Any person, firm, corporation or business organization related to ZTE by affiliation, ownership, control or position of responsibility in the conduct of trade or related services may also become subject to the provisions of the Order.

The activation of this Order essentially cuts ZTE off from the US export market until 2025, making it nearly impossible for the Company to acquire, export, reexport, transfer, or engage in most any activities involving items subject to the EAR until that time.

International Response

On Monday as well, the National Cyber Security Centre (“NCSC”) sent a letter to UK telecom providers warning them that the use of ZTE’s equipment and services could pose a national security risk. While the NCSC does not have formal powers to blacklist any companies, the Office of Communications, which reportedly was one of the recipients of the letter from NCSC, has the power to impose conditions on communications providers.